The Effects of TARP on Public Trust in Banks: Evidence from the Deposit Market

Zixi Guo

doi:10.54691/b64fk383

Authors

Zixi Guo

DOI:

https://doi.org/10.54691/b64fk383

Keywords:

TARP; Government Intervention; Public Trust; Deposit Market; Bank Run.

Abstract

This paper investigates how the Troubled Asset Relief Program (TARP) affects the public trust in banks, taking advantage of the changes in the deposit market share of banks during the financial crisis. By exploiting quarterly data from 2008 to 2011, this paper finds that the TARP funding substantially benefits the public trust, showing banks’ increased deposit market share with the TARP funding. Specifically, this paper estimates that the effect of the TARP funding on the bank increases the deposit market share by 0.057‰. The significant positive effect of the capital injection is more substantial for a bank with a relatively smaller size, a lower-risk tolerance, and not subject to strict supervisory scrutiny. Generally, the empirical analysis demonstrates that TARP funding was an effective method for improving public trust and mitigating bank runs. This paper sheds new light on the links between government intervention, public trust and the deposit market and adds to the studies and policy arguments regarding the efficiency of strict supervisory and regulatory monitoring.

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